Boehner's Attack on Regulation Runs Afoul of Lessons From BP and Katrina

Cross-posted from the Huffington Post.

Eager to blame the state of the economy on the Administration, House Minority Leader John Boehner recently tried to argue that the Administration's regulatory agenda is standing in the way of recovery. Sadly for Boehner, he tried to make that case shortly before the fifth anniversary of Hurricane Katrina, and while the smell of the BP oil spill still lingers in the Gulf. By any reasonable measure those two incidents are among the costliest and most devastating examples of the human and monetary costs of lax regulation.

In a letter to President Barack Obama, Boehner criticized the Administration's plans to implement 191 rules with potential economic costs greater than $100 million, arguing that "uncertainty" in the business community about the fate of the regulations is "contributing significantly to the ongoing difficulty our economy is facing." Apparently, Boehner and other opponents of regulation are betting that we'll forget the cost of regulatory failure as they repeat their mantra that regulation costs a lot of money, and that it cannot be good for the economy.

This claim is false on two counts. First, it ignores the reality that the costs associated with regulatory failure usually far outweigh the expense of effective regulation. Various federal agencies failed to protect the Gulf Coast region - first from the impact of Katrina, and then in the case of the BP Oil Spill. The Katrina failure cost billions of dollars, and more than 1,800 lives, to say nothing of the massive disruption to thousands of dislocated families, costs that cannot be measured.

The toll from the BP spill is hard to gauge at this point, but the cleanup costs and the lost income to the region's Gulf-dependent economy are bound to be staggering. Similarly, the recent string of other regulation-related disasters, including the financial meltdown on Wall Street, the Toyota recall, mine explosions and e. coli- and salmonella outbreaks have had impacts that far exceed what reasonable regulation would have cost.

The second fallacy in Boehner's argument is that regulatory costs are a drag on the economy. This argument dates back to the Reagan administration, which justified its attacks on regulation as economic renewal. The claim, of course, ignores the harm to the economy from the very crises that regulation is intended to avert, as the consequences of failing to regulate Wall Street unfortunately demonstrate.

The argument also pretends that the money spent on regulation produces no economic benefit. Like any spending, the costs of regulation generate economic activity, because the money is spent on goods and services, thereby generating jobs. It is difficult to tally the ultimate economic impact of regulation, but existing studies refute the notion that regulation is a job-killer.

Instead of mindlessly repeating the conservative shibboleth that free markets are good and regulation is bad, lawmakers would be better off examining why the current system is not working. The failure to protect people and the environment dates back to Katrina and continues to this month, when the FDA conceded that a large outbreak of food poisoning from bad eggs was the result of regulatory failure.

There are a number of interrelated reasons for regulatory dysfunction, but one stands out: The budgets for the regulatory agencies have been cut over and over again, leaving the agencies short-handed. While the country has serious budget problems, regulatory agencies are such a small part of the federal budget that refunding them would have almost no impact on the annual budget or the size of the deficit.

So while Boehner thinks we would be better off if we just stopped regulating the business community, the evidence indicates that regulation protects and boosts our economic welfare.